Charlotte's Web Holdings, Inc. CWBHF CWEB announced a $56.8 million investment from a subsidiary of BAT BTI BATS, which provides the company with incremental capital to fund growth initiatives, including the company's expanding portfolio of botanical wellness products.
BAT's investment has been made via a convertible debenture in the amount of $56.8 million. The debenture is currently convertible into a non-controlling equity stake in Charlotte's Web of approximately 19.9% and is convertible at BAT's discretion.
The investment provides substantial liquidity at an attractive cost of capital for Charlotte's Web. Upon closing of this investment, Charlotte's Web will have pro-forma cash and short-term investments of approximately $65 million.
Debenture Terms
The investment was made by BAT's subscription for an unsecured convertible debenture issued by Charlotte's Web in the principal amount of CA$75.3 million due November 14, 2029. The principal amount of the debenture is currently convertible into approximately 19.9% of the outstanding common shares of Charlotte's Web and, subject to adjustment in accordance with the terms of the debenture, is a conversion price of C$2.00 per common share on the Toronto Stock Exchange. The debenture will bear interest at a rate of 5% per annum with a step down to 1.5% following the date that federal laws in the United States permit, authorize or do not prohibit the use of CBD as an ingredient in food products and dietary supplements.
Concurrently with entering into the debenture, BAT and Charlotte's Web entered into an investor rights agreement. The investor rights agreement provides BAT with certain rights, including the right to nominate 20% of the members of the company's board of directors for so long as BAT and its affiliates' partially diluted ownership of the company's common shares is at least 15%. BAT's nomination rights terminate upon BAT and its affiliates' partially diluted ownership of the company's common shares declining below 10% for, subject to certain exceptions in the investor rights agreement, a 30 day period.
Price Action
Charlotte's Web shares were trading 6.87% higher at $0.7 per share at the time of writing Tuesday morning.
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